Child-Related Transfers, Household Labor Supply and Welfare Nezih - - PowerPoint PPT Presentation

Child-Related Transfers, Household Labor Supply and Welfare

Nezih Guner, Remzi Kaygusuz and Gustavo Ventura

CEMFI Tilburg University Arizona State University

January 2017

Motivation

Availability and cost of childcare is a key determinant of

female labor supply.

The macroeconomic and welfare implications of Child-Related

Transfers to households.

Childcare subsidies Child-related tax credits

What are the labor supply, gender gap, output, and welfare

e¤ects for the US economy?

What we do

Develop a life-cycle economy with heterogenous married and

single agents, household labor supply decisions and costly childbearing – Guner, Kaygusuz and Ventura (2012).

Parameterize this model to be consistent with a host of

cross-sectional observations.

gender and skill premia, labor force participation of married

females, structure of marital sorting, and the cost of children. Use framework for a quantitative evaluation of Child-Related

Transfers.

Why We Care

Female labor supply is quite elastic. Potentially large e¤ects. Big interest in policy circles: Child-related transfers are

appealing form of government transfers – without negative e¤ects on labor supply.

Such transfers are substantial in some countries (e.g Sweden),

but rather small in the U.S.

President Obama’s 2015 State of the Union Address:

"In today’s economy, when having both parents in the

workforce is an economic necessity for many families, we need a¤ordable, high-quality childcare more than ever. It is not a nice-to-have — it is a must–have. So it is time we stop childcare as a side issue, or a women’s issue, and treat it like a national economic priority that is for all of us.” Both Clinton and Trump were proposing expansions of

child-related transfers.

Child-Related Transfers in the US

Child-Care Subsidies

Means-tested, conditional on work. Serves mainly poor

working households.

Approximately 1.71 million children in 201, about 5.5% of

children between ages 0 to 13.

Subsidy rate is about 75%.

Child-Tax Credits (CTC)

Means-tested, partly-refundable tax credit. Independent of childcare expenditures or labor market status of

parents.

Starts at 1000$ per child and declines by income.

Child and Dependent Care Tax Credit (CDCTC)

Non-refundable tax credit for child care expenditures for all

households with working parents.

Maximum credit is 1050$ per child (with an overall maximum

• f 2010$), and declines by household income.

Serves middle and high income working households.

Key Model Features

Extensive margin in heterogenous couples.

Permits quanti…cation of major sources of labor-supply gains.

Account for costly childbearing in married and single

households.

Permits clean analysis of expansion of current arrangements.

Model skill depreciation of females due to childbearing

disruptions.

Allows us to capture increases in female skills due to expansion

• f subsidies.

Detailed modelling of existing policies.

Link to current policy debate.

Related Literature

Heckman (1974), Hotz and Miller (1988), Blau and Hagy

(1998): the e¤ect of childcare costs on female labor supply

Attanasio, Low and Sanchez-Marcos (2008): reduction in

child care costs and the rise of female labor supply.

Bick (2016): childcare subsidies have quantitatively signi…cant

e¤ects on female labor supply.

Domeij and Klein (2013): optimality of childcare subsidies in

life-cycle economies. They compute the welfare-maximizing level of childcare subsidies for German economy.

Rogerson (2007) – use of tax revenue to …nance government

transfers of service sector goods that are tied to female work

Heterogeneity

Life-cycle economy, j = 1, ...., JR, ....J. Males (m) and females (f ), heterogenous in their types

(education).

Male types, z 2 Z. These types map into productivity

pro…les, ̟m(z, j).

Female types, x 2 X. These types map into initial productivity

levels, h1 = ̟f (x, 1), and after age 1, h evolves endogenously. h0 = exp[ln h + αx

j

|{z}

growth

χ(l) δx |{z}

dep.

(1 χ(l))],

Additional permanent heterogeneity (within each type).

Male labor endowments: ̟m(z, j)εz Female labor endowments: hεx.

Household Structure

Agents can be single (S) or married (M). Married agents age, retire, and die together. Stationary

demographics.

Individuals value consumption and dislike work. Married

households dislike joint work.

Married agents maximize discounted sum of individual utilities.

Children and Child Care Costs

Married households and single females di¤er in terms of the

number of children attached to them – k(x), k(x, z)

They also di¤er whether they have access to informal care,

g 2 f0, 1g.

Three possibilities: without any children, early child bearers,

late child bearers, denoted by b = f0, 1, 2g

Early child bearers have children in ages j = 1, 2, 3 while late

child bearers have children in ages j = 2, 3, 4.

Children and Child Care Costs

If a female with children works, married or single, then the

household has to pay for child care costs.

Independent of hours worked.

Child care costs depend on

the age of the child, s = 1, 2, 3. whether the household has access to informal care, g 2 f0, 1g the type (education) of the mother.

Amount of child care required, d(s, x, g)k(x) or

d(s, x, z, g)k(x, z).

Total cost wd(s, x, g)k(x) or wd(s, x, z, g)k(x, z).

Child Related Transfers

• Child care subsidies
• Cost of childcare is wd(s, x, z, g)k(x, z)(1 − θ) if I ≤

I, and wd(s, x, z, g)k(x, z) otherwise.

• Two parameters: subsidy rate (θ) and eligibility (

I).

• Tax Credits
• CTC — potential credit that start from a maximum, and then

declines by income

• CDCTC — potential credit = min {maximum credit, earnings,

childcare expenditure}*rate

• rate declines by household income
• CDCTC is not refundable, and CTC is partially refundable.
• Actual credit depends on how much household own in taxes.

Other Taxes and Transfers

Households pay taxes on their total income T M(I, k) and

T S(I, k)

captures federal income tax

There is a (‡at) payroll tax that taxes individual labor

incomes, represented by τp, to fund social-security transfers.

Each household pays an additional ‡at capital income tax for

the returns from his/her asset holdings, denoted by τk.

Other Taxes and Transfers

The Earned Income Tax Credits (EITC), which works as a

wage subsidy for households below a certain income level.

Each household below a certain income level also receives a

transfer from the government as a function of its marital status and income.

Captures the other aspects of the welfare system in the US,

such as the TANF and Food Stamps. For a household with income level I, number of children k and

total child care expenditure D, the total tax credits and transfers are represented by TRS

f (I, D, k), TRS m(I, D, k) and

TRM(I, D, k).

Decisions

Households decide how much to consume and how much to

save

Married households decide whether the female member of the

household should work

Costs of work: child care expenses Bene…ts: higher household income, human capital

accumulation. Child-related transfers a¤ect the cost and bene…ts of work for

married females.

Extensive Margin

At the start of their lives married households draw a shock, q,

which stands for the utility costs of joint market work for married couples.

Residual heterogeneity in labor force participation.

Preferences

Single male

US

m (c, l) = log(c) ϕ(l)1+ 1

γ .

Single female

US

f (c, l, ky ) = log(c) ϕ(l + ky η)1+ 1

γ ,

Married male

UM

m (c, lm, lf , q) = log(c) ϕl 1+ 1

γ

m

1 2χflf gq,

Married female

UM

f (c, lf , q, ky ) = log(c) ϕ(lf + ky η)1+ 1

γ 1

2χflf gq, Note: γ is same for males and females

Decision Problem – Married with Children

Let sM (x, z, εx, εz, q, b, g). For b = f1, 2g, j 2 fb, b + 1, b + 2g,

V M(a, h, sM, j) = max

a0, lf , lmf[UM f (c, lf , q, ky ) + UM m (c, lm, lf , q)] + βV M(0)g

subject to c + a0 = 8 > > > > > > > > < > > > > > > > > : a(1 + r(1 τk)) + w(̟m(z, j)εzlm + hεxlf )(1 τp) T M(I, k(x, z)) + TRM(I, D(1 θ), k(x, z)) wd(j + 1 b, x, z, g)k(x, z)(1 θ)χ(lf ) if I b I a(1 + r(1 τk)) + w(̟m(z, j)εzlm + hεxlf )(1 τp) T M(I, k(x, z)) + TRM(I, D, k(x, z)) wd(j + 1 b, x, z, g)k(x, z)χ(lf ), otherwise where I = w̟m(z, j)εzlm + whεxlf + ra and D = wd(j + 1 b, x, z, g)k(x, z).

Decision Problem – Married with Children

V M(a, h, sM, j) = max

a0, lf , lmf[UM f (c, lf , q, ky ) + UM m (c, lm, lf , q)] + βV M(0)g

subject to c + a0 = 8 > > > > > > > > < > > > > > > > > : a(1 + r(1 τk)) + w(̟m(z, j)εzlm + hεxlf )(1 τp) T M(I, k(x, z)) + TRM(I, D(1 θ), k(x, z)) wd(j + 1 b, x, z, g)k(x, z)(1 θ)χ(lf ) if I b I a(1 + r(1 τk)) + w(̟m(z, j)εzlm + hεxlf )(1 τp) T M(I, k(x, z)) + TRM(I, D, k(x, z)) wd(j + 1 b, x, z, g)k(x, z)χ(lf ), otherwise and h0 = exp[ln h + αx

j χ(l) δx(1 χ(l))],

Quantitative Analysis

Model Period: 5 years. Types: less than high school (hs-), high school (hs), some

college (sc), college (col) and post-college (col+).

From data:

Demographic structure (Census) Who is single and who is married in each education level Who is married with whom Wage pro…les of males, initial wages for females (Census 2008)

Quantitative Analysis – Children

Child Bearing Status. From CPS June Supplement and Census High types (col or col+) are more likely to be childless or have

their children late

Singles are more likely to be childless than married

Childbearing Status, Single Females Childless Early Late hs- 27.72 62.04 10.24 hs 26.68 59.95 13.37 sc 32.39 53.38 14.23 col 53.75 30.50 15.75 col+ 56.17 23.06 20.77

Quantitative Analysis – Children

Childbearing Status, Married Couples Childless Females Males hs- hs sc col col+ hs- 6.75 8.23 8.60 13.37 15.51 hs 9.04 10.60 8.76 14.76 12.66 sc 6.82 10.52 9.53 12.66 13.08 col 3.52 9.36 10.35 11.57 11.24 col+ 5.90 10.57 9.55 9.45 13.28 Early Females Males hs- hs sc col col+ hs- 74.92 67.55 62.64 46.31 18.61 hs 70.03 63.33 60.10 43.39 40.98 sc 72.49 58.36 60.93 41.10 32.37 col 43.39 56.99 43.17 32.55 21.36 col+ 46.42 52.85 36.36 30.57 15.52

Quantitative Analysis – Children

Child Bearing Status. From CPS June Supplement and Census

Fertility Di¤erences Singles Married Females Male <HS HS SC COL COL+ < HS 2.72 < HS 2.74 2.52 2.27 1.97 2.08 HS 2.19 HS 2.73 2.27 2.15 2.10 1.97 SC 2.00 SC 2.68 2.27 2.23 2.07 1.89 COL 1.84 COL 3.01 2.34 2.27 1.97 1.87 COL+ 1.65 COL+ 2.22 2.26 2.43 2.18 1.90

Quantitative Analysis – Children

The Survey of Income and Program Participation

Fraction of Households Using Informal Care Young Children Single Married < HS 0.216 0.464 HS 0.133 0.309 SC 0.271 0.301 COL 0.232 0.183 COL+ 0.076 0.161 Older Children Single Married < HS 0.01 0.12 HS 0.16 0.04 SC 0.18 0.06 COL 0.04 0.05 COL+ 0.01 0.03

Quantitative Analysis – Children

The Survey of Income and Program Participation (SIPP)

Child Care Cost Di¤erences by Education Young Children Informal Formal Single Married Single Married < HS 1.06 1.25 1 2.05 HS 1.16 1.27 1.53 1.75 SC 1.28 1.17 2.17 2.10 COL 1.88 1.59 2.62 2.10 COL+ 1.87 2.16 2.94 3.32 Older Children Single Married < HS 1 1.12 HS 1.20 1.41 SC 1.58 1.22 COL 1.58 1.55 COL+ 2.14 1.82

Quantitative Analysis – Human Capital Accumulation

To calibrate human capital process

h0 = exp

• ln h + αx

j χ(l) δ(1 χ(l))

• .

Based on the PSID, we set δx = 0.009 for the unskilled group

and δx = 0.022 for the skilled group.

Then, we select αx

j so that if a female of a particular type x

works in every period, her wage pro…le has exactly the same shape as males.

Select these parameters before we run the model

Quantitative Analysis – Government

Estimate e¤ective tax functions from micro tax data - Guner,

Kaygusuz and Ventura (2014)

Take τp = 0.086 from the data (the average value of the

social security contributions as a fraction of aggregate labor income for 1990-2000).

Calibrate social security bene…ts for the lowest type single

male, pS

m(z1), to balance the budget. pS m(z1) is a fraction of

average household income.

Set all other bene…ts, pS

m(x), pS f (z), and pM(x, z) to be

consistent with data on social security bene…ts for retired households.

0,05 0,1 0,15 0,2 0,25 0,3 0,20,40,60,8 1 1,21,41,61,8 2 2,22,42,62,8 3 3,23,43,63,8 4 4,24,44,64,8 5 5,25,45,65,8 6 6,26,46,66,8 7 7,27,47,67,8 8 8,28,48,68,8 9 9,29,49,69,8 10

Household Income (fraction of mean household income)

Tax Functions, Marrried and Single Household with 2 Children

married, average married, marginal single, average single, marginal

Quantitative Analysis – Government

Childcare Subsidies, as they work in the US

θ = 0.75 (i.e. 75% subsidy) and set b

I such that the poorest 5.5% of families with children receive a subsidy. The CTC and CDCTC are modelled as they actually work The EITC is modelled as it actually works Welfare transfers are estimated using the Survey of Income

and Program Participation (SIPP)

0,005 0,01 0,015 0,02 0,025 0,03 0,035 0,1 0,35 0,6 0,85 1,1 1,35 1,6 1,85 2,1 2,35 2,6 2,85 3,1

CTC (fraction of mean household income) Household Income (fraction of mean household income)

Potential Child Tax Credit (a household with 2 children)

0,15 0,2 0,25 0,3 0,35 0,4 0,1 0,35 0,6 0,85 1,1 1,35 1,6 1,85 2,1 2,35 2,6 2,85 3,1

Fraction of Child Care Expenses Credited Household Income (fraction of mean household income)

Fraction of Child Care Expenses Credited with the CDCTC

0,005 0,01 0,015 0,02 0,025 0,03 0,035 0,1 0,35 0,6 0,85 1,1 1,35 1,6 1,85 2,1 2,35 2,6 2,85 3,1

The CDCTC ( fraction of mean household income) Household Income (fraction of mean household income)

Potential CDCTC

0,01 0,02 0,03 0,04 0,05 0,06 0,07 0,1 0,175 0,25 0,325 0,4 0,475 0,55 0,625 0,7 0,775 0,85 0,925 1 1,075 1,15 1,225 1,3 1,375 1,45 1,525 1,6 1,675 1,75 1,825 1,9 1,975 2,05 2,125 2,2 2,275 2,35 2,425 2,5 2,575 2,65 2,725 2,8 2,875 2,95 3,025 3,1 3,175 Tax Credits Received, as a fraction of mean household income Household Income, as a fraction of mean household income

Effective CTC plus CDCTC

A household with two children Male earns 60% of household income Household Spend 10% household income on childcare

0,01 0,02 0,03 0,04 0,05 0,06 0,07 0,08 0,1 0,178 0,232 0,298 0,373 0,448 0,523 0,598 0,673 0,748 0,823 0,898 0,973

EITC (fraction of mean household income) Housheold Income (fraction of mean household income)

Earned Income Tax Credit (household with 2 children)

married single

0,0000 0,0200 0,0400 0,0600 0,0800 0,1000 0,1200 0,1400 0,1600 0,05 0,1 0,15 0,2 0,25 0,3 0,35 0,4 0,45 0,5 0,55 0,6 0,65 0,7 0,75 0,8 0,85 0,9 0,95 1 1,05 1,1 1,15 1,2 1,25 1,3 1,35

Transfers (fraction of mean household income) Housheohold Income (fraction of mean household income)

Welfare Payments, Married Household

married, 0 children married, 2 children

0,0000 0,0200 0,0400 0,0600 0,0800 0,1000 0,1200 0,1400 0,1600 0,1800 0,2000 0,05 0,1 0,15 0,2 0,25 0,3 0,35 0,4 0,45 0,5 0,55 0,6 0,65 0,7 0,75 0,8 0,85 0,9 0,95 1 1,05 1,1 1,15

Transfers (fraction of mean household income) Household Income (fraction of mean household income)

Welfare Payment, single females

single female, 2 children single female, 0 children

Quantitative Analysis – Preferences

UM

f (c, lf , q, ky ) = log(c) ϕ(lf + ky η)1+ 1

γ 1

2χflf gq,

γ = 0.4 (based on available estimates) ϕ is calibrated to match the labor hours per worker. η is calibrated to match the LFP of married females with

young (0 to 5) children.

β is chosen to match capital-to-output ratio. q is assumed to be distributed according to a Gamma

distribution

parameters are match LFP for married females, ages 25-54.

Benchmark Economy

Model and Data

Statistic Data Model Capital Output Ratio 2.93 2.97 Labor Hours Per-Worker 0.40 0.40 LFP of Married Females with Young Children (%) 62.6 62.4 Variance of Log Wages (ages 25-29) 0.227 0.227 Participation rate of Married Females (%), 25-54 72.2 71.5 Less than High School (<HS) 46.4 48.0 High School (HS) 68.8 66.5 Some College (SC) 74.0 73.3 College (COL) 74.9 74.0 More than College (COL+) 81.9 79.3 With Children 68.3 65.0 Without Children 85.9 82.9

0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0 100,0 25-30 30-35 35-40 40-45 45-50 50-55 Age

Married Female Labor Force Participation by Skill

model-unskilled data-unskilled model-skilled data-skilled

0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0 100,0 25-30 30-35 35-40 40-45 Age

Married Female Labor Force Participation by the Presence of Children

model - no child data - no child model - with child data - with child

10 20 30 40 50 60 70 80 90 100 25-30 30-35 35-40 40-45 45-50 50-55

Gender Gap (%) Age

Gender Wage Gap

model data

Expansion of Childcare Subsidies

Benchmark Economy: θ = 75% and b

I = 21% mean income.

Make it universal Additional linear taxes on income for revenue neutrality. Assumption: Benchmark economy is a small open-economy.

Expansion of Childcare Subsidies

Expansion of Childcare Subsidies (%) Universal Subsidies (75%) Participation Married Females 8.8 Total Hours 1.4 Total Hours (MF) 7.1 Hours per worker (f)

• 1.3

Hours per worker (m)

• 1.2

Output 0.4 Tax Rate 1.3

Signi…cant increase in married female labor force participation

and total hours

Expansion of Childcare Subsidies

Expansion of Childcare Subsidies (%) Universal Subsidies (75%) E¤ects on Participation: By Education < HS 21.5 HS 12.1 SC 8.0 COL 7.4 COL+ 4.7 By Child Bearing Status Early 12.6 Late 7.2

The e¤ect on labor supply is much stronger for those with

lower education

Expansion of the CTC

Take the universal expansion of child care subsidies with 75%

subsidy rate.

Use this amount to increase the maximum credits for CTC.

Recall that the CTC does not require mothers to work When we expand a program, we also make it fully refundable.

CTC expansion: maximum credit increases from 1000$ to

2900$ per child.

Expansion of the CTC

Expansion of Tax Credits (%) Universal CTC Subsidies (75%) Expan. Participation Mar. Fem. 8.8

• 2.4

Total Hours 1.4

• 1.6

Total Hours (MF) 7.1

• 3.1

Hours per worker (f)

• 1.3
• 1.6

Hours per worker (m)

• 1.2
• 0.7

Output 0.4

• 1.2

Tax Rate (%) 1.3 1.3

The e¤ects on female labor supply is very di¤erent.

Expansion of the CTC

Expansion of Tax Credits (%) Universal CTC Subsidies (75%) Expan. E¤ects on Participation: By Education < HS 21.5

• 3.8

HS 12.1

• 1.8

SC 8.0

• 2.1

COL 7.4

• 0.9

COL+ 4.7 0.5 By Child Bearing Status Early 12.6

• 2.6

Late 7.2

• 1.0

Expansion of the CDCTC

• Sharp differences between the previous exercises
• flat rate subsidies versus transfers to all households with

children that decline with income

• We consider an expansion of the CDCTC that captures

elements of both programs.

• We construct a fully refundable, expenditure-equivalent

expansion of the CDCTC program that provides a mixture of childcare subsidies and transfers that decline with household income.

• Recall that potential credit = min {maximum credit, earnings,

childcare expenditure}*rate

• We multiply rate by a constant (5.75), and if the credit is

higher than the childcare expenditure, the household gets a transfer

0,02 0,04 0,06 0,08 0,1 0,12 0,14 0,16 0,18 0,1 0,35 0,6 0,85 1,1 1,35 1,6 1,85 2,1 2,35 2,6 2,85 3,1

CTC (fraction of mean household income) Household Income (fraction of mean household income)

Potential CTC and CDCTC (a household with 2 children)

CTC CDCTC CTC-new CDCTC-NEW

Expansion of the CDCTC

Expansion of Tax Credits (%) Universal CTC CDCTC Subsidies (75%) Expan. Expan. Participation Mar. Fem. 8.8

• 2.4

5.2 Total Hours 1.4

• 1.6
• 0.1

Total Hours (MF) 7.1

• 3.1

3.5 Hours per worker (f)

• 1.3
• 1.6

2.1 Hours per worker (m)

• 1.2
• 0.7
• 1.5

Output 0.4

• 1.2
• 0.4

Tax Rate (%) 1.3 1.3 1.3

The e¤ects of the CDCTC are similar to child care subsidies

Expansion of the CDCTC

Expansion of Tax Credits (%) Universal CTC CDCTC Subsidies (75%) Expan. Expan. E¤ects on Participation: By Education < HS 21.5

• 3.8

21.6 HS 12.1

• 1.8

10.5 SC 8.0

• 2.1

5.2 COL 7.4

• 0.9

3.5 COL+ 4.7 0.5 1.5 By Child Bearing Status Early 12.6

• 2.6

9.4 Late 7.2

• 1.0

4.1

Comparing Di¤erent Programs

Calculate the subsidy and transfer for each program

Childcare Subsidies and Transfers in Policy Exercises Universal Subsidies CTC Expan. CDCTC Expan. Income deciles Subs.(%) Trans.

• Subs. (%)

Trans.

• Subs. (%)

Trans. 1st 75 0.11 100 0.07 2nd 75 0.10 100 0.06 3rd 75 0.09 90 0.04 4th 75 0.06 71 0.01 5th 75 0.06 52 6th 75 0.05 50 7th 75 0.04 42 8th 75 0.05 56 9th 75 0.05 49 10th 75 0.04 67 0.01

Role of Endogenous Skills

Policy Experiments: Keeping Female Skills at the Benchmark Level (%) Universal CTC CDCTC Subsidies (75%) Expan. Expan. Participation Married Females 4.7

• 4.1

1.7 Total Hours 0.3

• 2.2
• 0.5

Total Hours (MF) 2.5

• 4.5

0.4 Hours per worker (f)

• 1.8
• 1.8
• 2.1

Output

• 5.1
• 5.5
• 4.8

Tax Rate (%) 2.2 2.2 2.2

The rise in female labor supply is much smaller.

Robustness

Redo everything keeping male hours at the benchmark level Redo everything under a closed economy assumption Consider a production function where skills are not fully

substitutable

Consumption and investment goods are produced according to

Y = F(K, S, U) = K αL1α

g

with Lg (νSρ + (1 ν)Uρ)

1 ρ ,

ρ 2 (∞, 1)

Recalibrate the benchmark economy and redo everything.

Welfare

Taking transitions into account Signi…cant gains for some

Welfare E¤ects (Newborns) Universal CTC CDCTC Subsidies (75%) Expansion Expansion Single F No Children

• 1.58
• 1.51
• 1.55

Early 3.99 10.41 15.32 Late 3.43 8.05 12.37 < HS 1.47 16.32 11.91 HS 2.20 9.17 10.86 SC 2.20 5.44 10.00 COL 1.19 1.96 5.49 COL+ 0.63 0.61 3.19

Welfare

Signi…cant gains for some

Welfare E¤ects (Newborns) Universal CTC CDCTC Subsidies (75%) Expansion Expansion Married No Children

• 3.51
• 3.36
• 3.45

Early 2.71 3.87 3.74 Late 0.71 2.29 1.52 All Newborns 0.66 2.02 2.31

Welfare

Signi…cant gains for some

Welfare E¤ects (Newborn Married Households)

Universal Subsidies (75%) Females Males <HS HS SC COL COL+ <HS 0.36 2.90 3.55 4.06 5.42 HS 0.10 1.54 2.13 3.04 5.41 SC 0.28 1.06 1.80 2.36 3.34 COL

• 1.06
• 0.34

0.09 0.30 1.32 COL+

• 2.29
• 1.68
• 1.21
• 0.62
• 0.17

CTC Expansion Females <HS HS SC COL COL+ 12.59 9.93 7.20 4.02 2.64 6.97 4.04 3.27 2.04 1.10 5.21 2.82 2.66 1.16 0.22 2.88 1.20 0.99

• 0.19
• 0.44

0.21 0.09 0.22

• 0.27
• 1.22

Welfare

Signi…cant gains for some, but also signi…cant losses for others

Welfare E¤ects Universal CTC CDCTC Subsidies (75%) Expansion Expansion Age 25-29 0.66 2.02 2.31 30-34 0.18 1.13 1.42 35-39

• 1.04
• 0.29
• 0.16

40-44

• 2.13
• 1.90
• 1.94

45-49

• 2.44
• 2.28
• 2.38

50-54

• 2.19
• 2.03
• 2.13

All

• 1.01
• 0.47
• 0.40

(%) Winners 13.3 12.55 10.90 Steady States: Newborns 0.71 1.94 2.30 (%) Winners 45.9 38.01 32.88

Conclusions

We evaluate the macroeconomic implications of expanding

child-related transfers.

We …nd that an expansion of current arrangements – childcare

subsidies, CTC and CDCTC – can have substantial e¤ects on participation rates and hours worked.

We …nd that the aggregate e¤ects of these policies depend

critically on whether they are tied to market work, or not.

We …nd large asymmetries in terms of welfare.

Quantitative Analysis - Marital Structure

Ages 30-39 About 74% married

Fraction of Agents by Type, Gender and Marital Status Males Females All Married Singles All Married Singles hs- 11.72 8.41 3.31 9.77 7.03 2.74 hs 20.30 14.75 5.54 16.98 12.21 4.77 sc 33.37 24.29 9.08 35.48 25.31 10.17 col 22.51 17.10 5.41 24.17 19.06 5.11 col+ 12.12 9.49 2.63 13.6 10.27 3.33

Quantitative Analysis - Marital Sorting

Ages 30-39 About 74% of people are married About 50% of people marry someone of their own type

Who is Married with Whom Females Males hs- hs sc col col+ hs- 5.77 2.35 2.65 .047 0.12 hs 0.19 7.21 7.80 2.31 0.70 sc 1.49 5.34 16.85 6.82 2.38 col 0.29 1.27 5.41 11.18 4.83 col+ 0.06 0.36 1.54 5.01 5.87

Quantitative Analysis – Heterogeneity

Initial Productivity Levels, by Type and Gender males (z) females (x) x/z < HS 0.511 0.426 0.813 HS 0.668 0.542 0.811 SC 0.728 0.639 0.878 COL 1.039 0.809 0.779 COL+ 1.287 1.065 0.828

Quantitative Analysis –Government

average tax rate (income) = η1 + η2 log(income) + ε,

Tax Functions Estimates Married Single (no child) (2 child.) (3 child.) (no child) (2 child.) (3 child.) η1 0.096 0.091 0.082 0.121 0.080 0.069 η2 0.053 0.056 0.056 0.035 0.035 0.032

Quantitative Analysis – Social Security Bene…ts

Single Males Single Females < HS 1 0.858 HS 1.126 0.999 SC 1.184 1.050 COL 1.274 1.063 COL+ 1.282 1.122 Females Males <HS HS SC COL COL+ < HS 1.708 1.873 1.904 1.890 1.911 HS 1.870 1.989 2.042 2.065 2.095 SC 1.887 2.018 2.040 2.101 2.249 COL 1.912 2.140 2.196 2.224 2.321 COL+ 2.091 2.149 2.234 2.300 2.365

Quantitative Analysis – Human Capital Accumulation

Labor Market Productivity Process for Females (αx

J)

Types Age <HS HS SC COL COL+ 25-29 0.038 0.114 0.194 0.213 0.254 30-34 0.041 0.086 0.125 0.140 0.157 35-39 0.042 0.063 0.077 0.091 0.095 40-44 0.044 0.044 0.038 0.053 0.048 45-49 0.045 0.027 0.003 0.020 0.007 50-54 0.046 0.012

• 0.031
• 0.010
• 0.033

55-60 0.047

• 0.003
• 0.069
• 0.042
• 0.078

Quantitative Analysis - Cost of Joint Work

Utility cost parameter is distributed according to ζ(qjz). Parameters match LFP for married females, ages 25-54.

Females Males <HS HS SC COL COL+ < HS 44.0 64.8 71.3 76.9 79.2 HS 49.4 70.8 77.2 85.1 90.6 SC 51.7 69.9 75.8 83.5 90.4 COL 47.1 64.0 68.6 73.0 82.9 COL+ 42.8 55.4 60.6 62.7 76.7 Total 46.4 68.8 73.9 74.9 81.9

Exploit the information on the rise of LFP with wages (type).

Robustness - Male Hours

Policy Experiments Under Fixed Labor Supply of Males ((%) Universal CTC CDCTC Subsidies Expansion Expansion (75%) Participation Married Females 8.5

• 1.1

4.9 Total Hours 1.7

• 1.1

0.5 Total Hours (MF) 6.6

• 1.6

3.5 Hours per worker (f)

• 1.3
• 1.3
• 1.8

Output 1.5

• 0.3

0.9 Tax Rate (%) 1.0 1.0 1.0

Robustness - Closed Economy

Policy Experiments in a Closed Economy (%) Universal CTC CDCTC Subsidies Expansion Expansion (75%) Participation Married Females 8.9

• 2.0

4.9 Total Hours 1.4

• 1.4

0.1 Total Hours (MF) 7.2

• 2.7

3.6 Hours per worker (f)

• 1.3
• 1.6
• 1.8

Output 0.2

• 1.4
• 0.6

Tax Rate (%) 1.2 1.2 1.2

Robustness - Imperfect Skill Substitutability

Policy Experiments Under Imperfect Skill Substitutability (%) Universal CTC CDCTC Subsidies Expansion Expansion (75%) Participation Married Females 8.5

• 2.3

4.4 Total Hours 1.4

• 1.6
• 0.1

Total Hours (MF) 6.8

• 3.0

2.9 Hours per worker (f)

• 1.1
• 1.9
• 1.9

Output 0.6

• 1.1
• 0.2

Skill Premium

• 0.2

0.8 0.3 Tax Rate (%) 1.2 1.2 1.2